Monday, October 6, 2008

Vice presidential candidate Joe Biden's son Hunter Biden and brother James Biden owe $1 million to SimmonsCooper law firm of East Alton from a hedge fund buyout that fell apart in 2006.

SimmonsCooper attorneys have contributed hundreds of thousands to campaigns of Senator Biden, his other son Beau Biden, and John Markell, current candidate for governor, while turning Delaware into a national magnet for asbestos lawsuits.

In the hedge fund case, Hunter Biden and James Biden seek to shift their debt to former partner Joseph Lotito through counterclaims in a fraud suit he filed against them.

New York State Supreme Court Justice Bernard Fried rejected their bid in May, ruling that they should have checked out the fund more carefully.

"These counterclaims, conditionally pleaded, do not rest on a justiciable controversy, but seek only to foment uncertainty and chaos between the parties in the event that plaintiff is successful in presenting the main claims," Fried wrote.

"Such pleading will not be countenanced," he wrote.

He held that Hunter Biden and James Biden can't allege misrepresentation when they failed to allege their own due diligence.

In June, Hunter Biden and James Biden appealed Fried's decision.

SimmonsCooper committed $2 million but withheld the second million after seeing how Lotito wasted the first million, according to Hunter Biden and James Biden.

SimmonsCooper invested in Hunter Biden and James Biden after teaming with Beau Biden's firm in Wilmington, Del.

Lotito met James Biden in 2002 and they invested together in 2005, according to Lotito.

Lotito introduced James Biden and Hunter Biden to lawyer John Fasciano, and the four began planning to buy Paradigm Capital Management.

Majority owner James Parks had started Paradigm in 1991 and successfully promoted it as less volatile than most hedge funds.

Everyone agreed that the Bidens and Lotito would form a corporation to buy 54 percent of Paradigm for $21.3 million in cash.

They would install Hunter Biden as chief executive officer at a salary of $1.2 million.

In April 2006, they formed LBB Limited Liability Corporation.

In May 2006, SimmonsCooper invested $1 million.

In June 2006, according to Lotito, the Bidens told him to stay away.

In August 2006, according to Lotito, the Bidens formed a corporation, executed a promissory note for $8.1 million, and purchased Paradigm's assets.

In September 2006, Lotito signed an agreement relinquishing his third of LBB.

He sued the Bidens in January 2007, alleging fraud and breach of fiduciary duty.

Attorney Brian Wille claimed the Bidens made a secret side deal, terminated Lotito's rights, and fraudulently induced him to sign away his interest in LBB.

Willie wrote that Lotito found investors and the Bidens rejected them.

He wrote that the Bidens intimidated Lotito and accused him of receiving kickbacks from Fasciano.

"Ultimately, the Bidens threatened to use their alleged connections with a former U.S. Senator to retaliate against counsel for insisting that his bill be paid, claiming that the former Senator was prepared to use his influence with a federal judge to disadvantage counsel in a proceeding then pending before that court," Willie wrote.

For the Bidens, Nicholas Gravante answered that Lotito failed to tell them that Fasciano would soon go to federal prison on a fraud conviction.

Gravante alleged that Lotito exaggerated Paradigm's value.

He alleged that Lotito failed to tell the Bidens that Parks had acted for years as absentee owner of Paradigm due to substance abuse.

Gravante filed a counterclaim and brought it to a hearing before Fried in June 2007.

Gravante called Lotito a criminal, and Fried asked where his pleadings called him that.

Gravante stammered and Fried said, "In my courtroom I would like you to restrict yourself to acting civilly."

Fried said, "You have accused him of being a criminal in this courtroom and it's not in these papers."

Gravante said, "He is accused of crimes. I don't call him a criminal, correct."

Fried rejected the counterclaim last September but ruled that the Bidens could amend it.

Gravante amended it to allege that LBB "specifically recruited SimmonsCooper as a result of Lotito's and Fasciano's misstatements and omissions."

SimmonsCooper withdrew, he wrote, and its investment converted to debt.

At a hearing this January, Gravante said the Bidens had "an uncheckered history."

He said, "These are reputable people - discovery will bear that out - who wouldn't have agreed to have that kind of an attorney do this work for them."

In May, for the second time, Fried rejected the counterclaim.

"Certainly defendants do not claim that the law permits sophisticated investors to rely on whatever representations a potential advisor makes without the need for a diligent inquiry by defendants, and that such representations are actionable if they wind up to have been faulty," Fried wrote.

Although the dispute hinges on the SimmonsCooper investment, neither side has alleged that Lotito knew or didn't know that SimmonsCooper would invest.